“I’m familiar with the fact that you are going to ignore this particular problem until it swims up and bites you in the ass,” Hooper says to mayor Vaughn in Jaws.
The gaudy-suited, chain-smoking mayor in Spielberg’s classic shark flick embodies the conflicting pressures of short-term political self-interest (keep the beaches open and the economy moving) and long-term necessity (close the beaches, our kids are being devoured by a killer shark).
Ireland has, for most of its recent economic and political life, been the mayor in Jaws, sworn to a path of short-term pragmatism at the expense of longer-term planning.
Look at the hiatus in home building after the crash or the yawning deficit in public infrastructure, sharks that are now coming to bite us in the ass.
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Our income tax is onerous on middle-income earners primarily because of USC (universal social charge), an emergency tier of the tax system brought in to plug a hole in the public finances after a period of reckless spending. It’s now an immovable part of the tax landscape.
It’s somewhat bemusing then to see the Department of Finance crystal ball gazing out to 2065 when it can’t seem to forecast what health spending will be in six months time.
Perhaps that’s a cheap shot, the department’s Future Forty report (an assessment of the economic and fiscal challenges bearing down on the State) published this week, is, in the department’s own words, an attempt “to embed longer-term thinking within the system”.
A commendable ambition given what we’ve had.
All democratic governments struggle with planning. Political cycles are short and the politics of the day tend to crowd out other issues.
The more populist you get, the more future planning goes out the window.
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US president Donald Trump’s “big, beautiful” tax Bill will add a whopping $3.4 trillion (€2.9 trillion) to US debt over the next decade. He’ll be long gone when that fruit sours.
But even by international standards, Ireland is a test case in bad planning.
Poor for so long then suddenly wealthy, it has perhaps not got used to setting money aside or apportioning it out in a more balanced way or managing expectations around it.
It longs to preside over the public finances like an even-handed Danish bureaucrat but gets caught in the razzle dazzle of the big spend.
For years, finance ministers appeared on budget day like stage magicians, sawing women in half in front of bewildered audiences, all smoke and mirrors.
[ Ireland’s shifting demographics pose major challenge for the exchequerOpens in new window ]
The current incumbent wants to break from that, to inoculate the public finances against the virus of short-termism.
But has he got as tight a grip on the country’s cash as he claims? The State’s budgetary watchdog, the Irish Fiscal Advisory Council (Ifac), insists day-to-day spending is running way out of its lane.
This week senior figures in the European Central Bank (ECB) also expressed concern about State’s windfall taxes and the fact that we should be saving more ahead of probable slowdown in receipts after 2030.
When asked about this, Minister for Finance Paschal Donohoe insisted running budgetary surpluses of €8 billion – €9 billion – as the Government has been doing – was unprecedented in the country’s financial history.
“I think they are at the highest level that is achievable given the total quantum of taxes that we are collecting and the many different pressures that we are facing.”
“For those who argue we should be setting more aside, I propose the question, do we think it is achievable to be running surpluses of €10 billion – €15 billion with the capital needs that we have within our economy,” he said.
[ Ireland’s housing crisis to last another 15 years, Department of Finance predictsOpens in new window ]
He’s right about the unprecedented surpluses but the tax windfall is perhaps more extraordinary and probably something that won’t come again and something we may regret not having doing more with.
Back in the 1980s, the UK blew its North Sea oil and gas windfall on tax cuts and a programme of privatisation while Norway played a waiting game, saving most of it. Forty years on and the two economies couldn’t look more different.
The department’s report makes pretty clear: Ireland’s public financing model is running out of road. Demographic pressures, climate transition costs and other factors, including US protectionism, represent a ticking time bomb for the exchequer, one that we must start defusing.
Health expenditure was about 5 per cent of national income in 2000, it’s now 9 per cent and projected to rise, under the department’s baseline scenario, to 12.5 per cent by 2065. That equates to €67 billion a year.
Without corrective action, this would see the State’s annual deficit and debt swell to 8 per cent and 150 per cent of national income respectively, a level that would potentially push us back in bailout territory.
When the town’s shark problem in Jaws erupts into a full-blown crisis, police chief Brody delivers the coup de grace to the beleaguered mayor: “Larry, the summer is over, you’re the mayor of shark city.”
Let’s hope Ireland’s financial summer doesn’t end the same way.
